Systematix Group favours Eicher Motors Ltd., TVS Motor Co. and Bajaj Auto Ltd. among two-wheeler makers as the auto sector faces a higher base of comparison and rising raw material costs in the second half of the financial year. The brokerage is also positive on Hyundai Motor India Ltd. in passenger vehicles and Tata Motors Ltd. in commercial vehicles, citing companies' ability to manage cost pressures, premiumisation opportunities and business-specific factors.
Abhishek Ghosh of Systematix Group said the firm was selective on auto stocks as the industry enters a period when last year's sales base could make growth harder to sustain, while higher input costs could put pressure on earnings.
He said companies that can sell more premium products or raise prices without hurting demand are better placed to navigate these challenges.
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Two-Wheelers
Systematix favours Eicher Motors, TVS Motor and Bajaj Auto in the two-wheeler segment, Ghosh said in an interview with NDTV Profit.
He highlighted Bajaj Auto's relatively low dependence on the domestic motorcycle market. About 25% of the company's volume comes from domestic motorcycles, according to Ghosh, limiting its exposure to changes in that part of the market.
The analyst's preference for these companies comes as the sector faces a higher base of comparison in the second half of the financial year and rising raw material prices. He said the ability to sustain premiumisation or pass on higher costs without affecting demand would be important in assessing auto companies.
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Passenger Vehicles
Systematix favours Hyundai Motor India among passenger vehicle makers, citing its upcoming product cycle.
Ghosh said the benefit of the goods and services tax cut had not been fully reflected in Hyundai's numbers in the previous year. He expects the company's new product cycle, which is set to begin during the festive season, to be a factor in its performance.
The passenger vehicle segment has faced pressure in the initial Navratri sales figures, although Systematix has argued that the headline numbers do not fully capture underlying demand because of differences in the festive calendar and last year's GST-related purchase deferrals.
Commercial Vehicles
Systematix favours Tata Motors in the commercial vehicle segment, with Ghosh citing the expansion of its addressable market following the Iveco transaction.
The brokerage's preference comes as the auto sector prepares for a higher comparison base and rising raw material costs. Ghosh said companies with pricing power or the ability to move towards premium products could be better positioned to manage those pressures.
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